ARMENIAN EXTERNAL RESERVES FALL OVER H1
by Venla Sipila

World Markets research centre
Global Insight
August 25, 2008

Armenia’s international reserves continued to decrease over the second
quarter of 2008, after reducing by 3.4% over January-March. Indeed,
latest figures from the Central Bank of Armenia (CBA) show that
the country’s gross international reserves over the first half of
this year decreased by 4.9%, ARKA News reports. Over June alone,
Armenia’s external gross reserves fell by $31US.5 million. This
development brought the level of CBA’s gross international reserves
down to $1US.578 billion by the end of June. Specifically, Armenia’s
convertible foreign-currency assets stood at $1US.563 billion, falling
by 5.2% during the first half. Conversely, Armenia’s Special Drawing
Rights (SDRs) at the International Monetary Fund (IMF) amounted to
$15US million, rising by over 50% over January-June. The CBA does
not hold any gold reserves.

Significance:Armenia’s international reserves have considerably
increased over recent years, boosted by strong inflows of workers’
remittances and investment, and import coverage at present stands
comfortably above the critical level of three months. Against this
background, the fall in reserves over the first half is not yet very
alarming. Indeed, Global Insight expects import coverage to weaken
somewhat over 2008, while still providing adequate means for paying for
imports and for any possible currency stabilisation needs in the case
of external shocks. However, this should not mask the fact that rapidly
rising imports at present are exerting strong weakening pressure
on Armenia’s trade balance and, further, on its overall external
payments position, at the same time as its export earnings potential
remains poor. Indeed, Armenia’s wide current-account deficit signals
continued external vulnerability, especially given Armenia’s reliance
on remittances and private transfers for covering the external gap.